Traders dump tech stocks
MORGAN Stanley, which recommended selling US tech stocks a month ago, says traders are finally starting to take heed.
The Nasdaq Composite has lost as much as 4.2 percent since reaching a record high on July 25, as investors fled the likes of Facebook, Twitter and Netflix following disappointing earnings.
And while Apple breached the historic $1 trillion (R13.4trln) value mark last week, Morgan Stanley warns that this could actually be a signal of the rally in tech reaching a top, posing risks for the broader market.
“When we made the call, feedback was fairly lopsided against us. Phones were not ringing and even those who had sympathy for our views of a poor near-term risk reward in tech could only muster an ‘I see your points, but… good luck’,” Morgan Stanley strategists led by Michael J Wilson said in a note.
“Given recent moves lower in parts of tech and challenges to growth and momentum, our inbound has picked up considerably as investors consider these risks.”
The bank’s strategists are sticking with their underweight US tech recommendation, citing lower earnings revisions in some parts of the sector, continued leadership of defensives, as well as the fact that fewer stocks are now spurring the market gains.
The main thrust of their bear call is that the nascent sell-off in tech – which at 26 percent has the highest weighting in the S&P 500 Index – will likely mark the beginning of a bigger drop in US stocks. Morgan Stanley warned last week that the US equity slump is just starting and that growth stocks-focused portfolios could especially get hurt.
“If we are right, and tech gets its turn on the volatility roller coaster, its market weighting, crowded positioning and overweight in growth and momentum strategies mean the pain will likely spread beyond just the tech sector,” Morgan Stanley strategists wrote. – Bloomberg